Moody's Investors Service last week confirmed ratings for the Milwaukee Metropolitan Sewerage District and for seven communities that have been fighting the district's method for allocating capital costs.
Arlene Bohner, a senior analyst at Moody's, said the agency undertook a ratings review in the face of investor concerns over the impact of about a dozen years of litigation between the district and the communities.
At issue is the district's decision to allocate capital costs for its water pollution abatement project on an ad valorem basis rather than on a usage basis. The decision, which meant higher revenues from some of Milwaukee's wealthier suburbs, sparked litigation that ultimately ended up in the Wisconsin Supreme Court.
The high court ruled in the district's favor in 1992. Since then, the district has been trying to recover revenues from the communities. According to James Hill, the district's director of finance and administration, the communities owe $135 million.
Moody's continued the district's Aa rating on $534 million of outstanding debt, citing the district's financial flexibility through its "rate-setting autonomy, authority to levy unlimited property taxes, and access to low-interest state revolving fund loans."
The rating agency also confirmed general obligation ratings for seven communities that have a total of $88 million of debt outstanding. Moody's confirmed an A rating for Butler, Aa for Elm Grove, A for Germantown, A1 for Mequon, A for Muskego, A1 for New Berlin, and A for Thiensville. The rating for Menomonee Falls remains under review pending a note sale next month.
Bohner said the confirmations were based on a number of factors, including whether the communities have set aside reserves to pay what they owe to the district.
A little less bustle in Pennsylvania Hospital's delivery room is one of the reasons that Standard & Poor's Corp. last week downgraded $69.62 million of bonds issued in 1986 by the Philadelphia Hospital & Higher Education Facility Authority.
The hospital revenue refunding bonds, sold on behalf of Pennsylvania Hospital, were lowered to BBB-plus
from A following a period of declining operating performance and increased exposure to variable-rate debt, Standard & Poor's said in yesterday's issue of CreditWeek Municipal.
A 9% volume decline over the past three years in obstetrics, one of the hospital's chief services, has contributed to operating losses of about $2 million in 1993 and 1994, the rating agency said. In addition to fewer babies, increasing reimbursement pressures have contributed to a plunge in bottom-line income to $2.3 million this year from $9.8 million in 1992.
Standard & Poor's also attributed the downgrade to the issuance in 1994 of $66.7 million in variable-rate refunding bonds and $33.6 million in new money. The higher debt levels are offset somewhat by the hospital's traditionally strong liquidity.
To regain its fiscal health, the 457bed hospital has taken a number of steps, including the termination this year of an unprofitable contract with U.S. Healthcare and the implementation of a cost-cutting program that is expected to save $3 million a year. Staffing reductions are also planned, the rating agency said.
The measures are expected to put the country's oldest hospital back in the black by June 30, the end of fiscal 1995.
